The euro fell 0.4% to $1.1668 on Tuesday as French political turmoil continued following the surprise resignation of Prime Minister Sebastien Lecornu a day earlier. Talks with several political parties continued, but it was still unclear what role Lecornu would play after his administration became the shortest in modern French history.
The rejection of Lecornu's cabinet by allies and opponents added to uncertainty in Paris, weighing on French currency and stock markets. Analysts said the political crisis could undermine investor confidence in the stability of the eurozone economy.
The euro was also weighed down by comments from European Central Bank officials that left room for another interest rate cut. Meanwhile, the Fed is expected to cut rates by 25 basis points later this month, although the latest economic data was delayed by the US government shutdown.
The US dollar index rose 0.3%, supported by the euro's weakness and expectations that the Fed's meeting minutes will have a major impact on markets this week.
In Asia, the yen fell to a two-month low as investors priced in Sanae Takaichi's victory as LDP leader. Her pro-stimulus policies and criticism of the Bank of Japan's interest rate hikes signal that the loose monetary stance will continue, despite the risks of rising inflation and the cost of living.
